Reply to: Offshore Option

[Fred Bloggs]

No chance. All income subject to a single tax regime with no interesting variants or let's pretend offshore options is where we'll end up, with current differentials such as OAPs maintained through the tax free allowance. In about five years...

I think history shows that the more penal the tax system gets (and that's where we're heading) the off shore schemes get more and more business and the more inventive in their structures.

[malvolio]

Slightly off topic, but if boy George puts the income tax rate up to 32% on salary and on dividends as well (as seems likely) these off shore schemes are going to be rubbing their hands in anticipation of a flood of new users.

No chance. All income subject to a single tax regime with no interesting variants or let's pretend offshore options is where we'll end up, with current differentials such as OAPs maintained through the tax free allowance. In about five years...

[Fred Bloggs]

Slightly off topic, but if boy George puts the income tax rate up to 32% on salary and on dividends as well (as seems likely) these off shore schemes are going to be rubbing their hands in anticipation of a flood of new users.

[DonkeyRhubarb]

If people decide to use these type of Company's which clearly carry risk, how does the taxman actually know who is using them and who isn't. As the Company you are 'dealing with' holds your personal information, does the taxman have access to this data?

Under the Disclosure of Tax Avoidance Schemes rules (DOTAS), companies have to notify HMRC before they can market a scheme. HMRC then issues a Scheme Reference Number (SRN).

When you file your SA return, you have to enter the SRN in the appropriate box on the form.

Some of the promoters say loans don't have to be disclosed on the SA return but I'm assuming HMRC could simply request details from the company of all taxpayers who have received such loans.

I think it would be unwise to count on HMRC not finding out.

[malvolio]

If people decide to use these type of Company's which clearly carry risk, how does the taxman actually know who is using them and who isn't. As the Company you are 'dealing with' holds your personal information, does the taxman have access to this data?

Schemes affecting UK taxpayers should be declared to the taxman, there are multiple offshore disclosure agreements between countries (pretty much all of them these days) so they can see where the money goes and, of course, it is your responsibility to declare all your taxable income correctly or go to jail for evasion. There is no hiding, the challenge for Hector is to prove any given scheme to be unworkable: they haven't done very well at that to date, but they are changing the rules so they can.

The risks are real and don't think for a moment that the various loopholes and hiding places aren't being turned off.

[Munchers]

Follow Up

If people decide to use these type of Company's which clearly carry risk, how does the taxman actually know who is using them and who isn't. As the Company you are 'dealing with' holds your personal information, does the taxman have access to this data?

[Emigre]

Many contractors do not realise that HMRC are a huge/cumbersome sleeping giant and it sometimes takes them many years to "move into gear" BUT when they do you are suddenly looking at 5-6 years of tax enquiries/investigations and unlike Montpelier (who have stood by their clients) some EBT promoters are "one-trick ponies" and will quickly disappear/dissipate when going gets tough.

Montpelier are indeed stand-out performers for their support of their clients. I'm concerned about the image that "HMRC are a huge/cumbersome sleeping giant" and that its therefore ok for them to take as long as they do and have. HMRC have 12 months from the date of return to advise that they are enquiring into a tax return. Once they have done that, it is only right and reasonable for them to be obligated to either get on with it or accept the return. A further 12 month period should be more than adequate for that. They weren't being sleeping giants when they issued the TMA70 notice so why should they be allowed to be after that?

In the circumstances of the DTA arrangements it is obvious that HMRC were so slow because they simply did not have a case and they knew it. They spent longer and longer looking at different unsupportable angles, issuing bullying letters, until they lied their way into getting S58 on the statute books. The arrangements have not been challenged at a tribunal as agreed by HMRC, they even ran away from that. Their actions have been nothing short of deceitful and malicious.

Public bodies, to retain any integrity, need to not only be above that but be seen to be above it. Its not difficult, transparency and honesty amount to everything. Oh, that's exactly what we were with our returns. Doesn't that simply encourage the taxpayer to slip down to the level of the opposition, HMRC? Goodwill is something earned. HMRC have already forfeited any chance of regaining it from me in my lifetime.

If we lived at the same level as the characteristics HMRC have displayed in their dealings with us it would be completely acceptable to hide everything from them.

[Alan Jones]

Further Clarification

I have been informed by Darwin Pay (and therefore Sanzar - they appear to be have same owners/managers or the Delivery guys that keep ringing my office bell and asking for Sanzar on 3rd floor when its Darwin Pay on 3rd floor are constantly making mistakes!) THAT they have NOT merged with AML .
So my "hunch" was wrong and happy to put record straight.

I have received a letter from a company IPSP Ltd who reside in same building as me and they state IPSP provide services to Darwin Pay Ltd and Sanzar Ltd. Once again very happy to put the record straight.

[Alan Jones]

Tax Barrister Opinions

The schemes have been approved by a tax barrister who should be fully conversant with the Ramsay principle as it's been around for 30 years. I'd be surprised if there was any mileage in this for HMRC.

DR my concern is that the schemes are not implemented and/or operated in accordance with the Tax Barrister's opinion and i do believe that the differences between what happens in practice and what is supposed to happen according to Tax Counsel are sufficient for HMRC to take a closer look at certain schemes e.g. as recently as last month HMRC made the statement that they feel that certain EBT schemes do/did not work (even prior to the intro of the disguised remuneration tax in December 2010 which effectively killed off the tax advantages offered by EBT's) and that they are going to challenge them.

Many contractors do not realise that HMRC are a huge/cumbersome sleeping giant and it sometimes takes them many years to "move into gear" BUT when they do you are suddenly looking at 5-6 years of tax enquiries/investigations and unlike Montpelier (who have stood by their clients) some EBT promoters are "one-trick ponies" and will quickly disappear/dissipate when going gets tough.


I hope - albeit chances are slim - that next week there will be an announcement that gives contractors the confidence to be able to return to the "old" PSC/one man Ltd company model and operate with tax certainty and a decent return.

[Alan Jones]

Conversion from EBT scheme to "no-longer-an-employee" scheme

Food for thought 3 – Conversion from EBT to “no-longer-an-employee”

Having established that most EBT schemes have now converted or about to convert to a “no-longer-an-employee” scheme let’s take a look at the conversion exercise:

Let’s assume that you (the contractor) were going to cease to be an employee on the 31st January 2011 and commence your “no-longer-an-employee” status on 1 February 2011.

Did your promoter notify you:

A/ before 1 February 2011 of this changeover OR

B/ send you notification/documents at the end of February stating your new status commenced on 1 February and that you were not actually an employee during February although you were NOT aware of this until end of February .

If its B/ then be prepared for HMRC to take a closer look at your tax affairs

[Alan Jones]

Clarification

Have Darwin Pay / Sanzar / AML (used to be known as Aston) merged.

They were all offering EBT’s prior to the introduction of “disguised remuneration” on 9 December 2011 and NOW they all seem to be using a scheme (or about to introduce it) where the contractor is a Sole Trader supplying services to an Offshore Partnership (remember BN66) who in turn sub-contracts to "friendly" UK Umbrella company who sub-contracts to UK Agency who sub-contracts to UK End Client.

PLUS it appears one of the above is holding its clients hostage to fortune to ensure they join the new scheme i.e. a client wished to leave the old scheme BUT the promoter stated that any outstanding loans due would be subject to PAYE (income tax/NI). BUT if they stayed and joined the new scheme then the “old employment” related loan would be “rolled/churned” into the new scheme and would be OK and NOT subject to tax.

I have been informed by Darwin Pay (and therefore Sanzar - they appear to be have same owners/managers or the Delivery guys that keep ringing my office bell and asking for Sanzar on 3rd floor when its Darwin Pay on 3rd floor are constantly making mistakes!) THAT they have NOT merged with AML .

So my "hunch" was wrong and happy to put record straight.

[Alan Jones]

Rolling/Churning EBT loans into new "no-longer-an-employee" scheme

Food for thought 2 – Is this the “hostage to fortune hold” that EBT promoters have over existing clients:

1. Assume contractor in EBT on 9 December on £7.7k per month i.e. gross pay £1k fees £0.7k and loan of £6k.

2. As at 5 April 2011 he has received 4 loans of £6k all caught by the Disguised Remuneration tax “DRT” a total of £24k.

3. However, DRT rules say if £24k loan repaid before 6 April 2012 then NO Tax/NI to pay.

4. SO – contractor joins new scheme on 1st April i.e. Sole Trader fee £1k fees £0.7k and loan of £6k.

5. At this point let’s assume the new set-up passes the DRT rules

6. The Contractor now receives “no-longer-an-employee” loans of £6k per month for say 8 months

7. contractor uses £3k each month from the “no-longer-an-employee” loans to repay the £24k EBT “employee” loan

8. PROMOTER CONFIRMS THE EMPLOYEE LOAN IS FULLY REPAID AND THEREFORE NOT subject to tax because it has been repaid before 6 April 2012

9. Meanwhile the contractor is £24k out of pocket because he has repaid the EBT “ employee” loan

10. SO he receives a new loan of £24k which the promoter says is a “no-longer-an-employee” loan and therefore NO tax- hence the term “rolling”.

11. Many contractors will not be able to be out of pocket by £3k per month for 8 months. SO the
promoter may actually return the £3k as a ““no-longer-an-employee” loan immediately after receiving it as a repayment of the EBT “employee” loan – hence the term “churning”.

12. BUT according to HMRC disguised remuneration rules it is taxable because it can be “traced” back to when the contractor was an employee in the EBT scheme. UNFORTUNATELY this ruse only works if HMRC do NOT find out i.e. they do not investigate BUT

13. the BIG BUT is IF HMRC do find out then NOT only will the contractor be facing a tax bill re £24k – the non-compliance will result in HMRC swarming over both the “ pre- 9 December 2010 EBT” scheme loans and the post 9 Dec 2010 “not quite an EBT” scheme.

SO if you recognise this scenario pick up the phone to your promoter and ask ...........

[ASB]

..but I think it can be, simply by virtue of the company receiving settlement of its sales invoice.

I wouldn't like to bet against it.

"As a result of the transfer (alone or in conjunction with associated operations), income becomes payable to a person abroad."

This is one of the broad conditions, I don't really see how this criteria could be satisfied. It appeared to me (having briefly read the guidance you linked to) that person did mean precisely that. However, you are far more likely to be right than I am. It's not my job, I'm just an interested observer.

[jmo21]

Sounds a bit "head in the sand".

I don't know your circumstances (they will obviously differ to mine) but personally, I would find it difficult to come up with a reason to form such a business relationship other than tax avoidance so I guess I would fail this test and would be unable to use such a scheme.

[Wanderer]

As our mutual correspondent Malvolio kindly pointed out, we will have to assume that the Ramsey principle doesn't apply & that our relationship and activities are not contrived so as to gain a tax advantage.

Sounds a bit "head in the sand".

I don't know your circumstances (they will obviously differ to mine) but personally, I would find it difficult to come up with a reason to form such a business relationship other than tax avoidance so I guess I would fail this test and would be unable to use such a scheme.